Sarkozy: US Protectionism in $40B of Lost Tankers

I am surprised that other blogs purportedly covering IPE and/or trade haven't featured this latest development in the EADS (the European aerospace consortium that is Airbus' parent company) versus Boeing squabble over a contract to replace America's aging fleet of air tankers. As you probably know, the Boeing KC-135 Stratotanker that refuels aircraft in flight has been in service since, er, 1957. However, bickering between EADS and Boeing over a fairly lucrative $40 billion contract has meant the replacement of the aging KC-135 being put off again and again. Three rounds of bidding have occurred: In 2003, Boeing won, although this decision was later overturned on evidence of foul play. In 2005, a bid by EADS in conjunction with US partner Northrop-Grumman eventually won, but this too was eventually overturned by an appeal from Boeing. In 2010, with bidding about to get underway again, we have news that EADS/Northrop-Grumman have thrown in the towel over Air Force specifications they say deliberately favours Boeing. Please see my earlier "di plane" entries on the recent history of this quarrel [1, 2, 3].

Now, it appears that this soap opera may be coming to an end as EADS' American partner, Northrop-Grumman, is calling it quits after tiring of challenges emanating from opposing interests, likely leaving Boeing as the sole bidder unless EADS submits a bid on its own. As the WSJnotes below and in the graphic above, there is also a lobbying angle since Boeing has funded a lot of Democrats while Northrop-Grumman funded a lot of Republicans as the political balance was tipping in the former's direction in Washington:

French President Nicolas Sarkozy accused the U.S. of protectionism on Friday as political tensions heightened over a controversial $40 billion military-aircraft deal. Mr. Sarkozy, speaking in London, said he was disappointed that a long-delayed contract to supply a fleet of aerial-refueling tankers to the U.S. Air Force appeared likely to go to Boeing Co.

Earlier this week, a rival consortium composed of Northrop Grumman Corp. and European Aeronautic Defence & Space Co. withdrew from the competition, in part because it said the terms favored Boeing. "Such methods by the United States are not good for its European allies, and such methods are not good for the United States, a great, leading nation with which we are on close and friendly terms," Mr. Sarkozy said. "If they want to be heard in the fight against protectionism, they should not set the example of protectionism." In addition, French Finance Minister Christine Lagarde told the Wall Street Journal Friday that "avoiding protectionism, avoiding exclusion and restrictions is something we should all be very keen to do."

Despite the Northrop team's withdrawal, there is a possibility the competition may not be over. EADS earlier this week sent a letter to the Pentagon saying it was considering submitting a bid on its own, but provided no timetable concerning when it would make a decision, according to a person familiar with the matter. An EADS spokesman declined to comment on the issue. An EADS bid could save the Pentagon from a potentially awkward situation in which it has only one bidder—Boeing—for a massive military contract...

The battle over the tanker contract has touched not only on trade issues, but also on how closely the two competing teams were aligned with U.S. political parties. Fund-raising data and other evidence suggest Boeing has been closer to Democrats, while Northrop and EADS sought support from Republicans, further complicating the tangled history of the deal. Since the Air Force first set out in 2002 to replace its aging fleet of Eisenhower-era tankers, it has been tripped up in a political battle. Chicago-based Boeing won the first round in 2002, only for the deal to be scuttled by Republican Sen. John McCain of Arizona.

Round two went to the combined Northrop-EADS team in 2008, but Boeing successfully protested that award. Some analysts say Northrop and EADS erred by appearing to appeal to a Republican administration and a Republican-controlled Congress when the tanker competition began in earnest five years ago. It chose a consulting firm headed by a friend of the Bush family and picked a state for its facilities, Alabama, with powerful Republican representation in Congress.

Since then, Republicans have lost their majorities and the presidency. The political dynamics shifted further against EADS and Northrop after the recent death of Rep. John Murtha (D., Pa.). Mr. Murtha, chairman of the House subcommittee responsible for military appropriations, favored splitting the contract. He was succeeded at the subcommittee by Rep. Norm Dicks (D., Wash.), one of Boeing's strongest supporters.

Northrop's political donations tell a similar story. From 2000 through 2008, its political-action committee gave more money to Republican candidates than Democratic ones, as much as 67% in the 2004 election season. Since the 2008 election, for the first time, it has given more to Democratic candidates—57% of the $708,000 spent, according to the nonpartisan Center for Responsive Politics...

Boeing, by contrast, has tended to lean Democratic; many of its facilities are in the true-blue state of Washington. Since 1990, it has split its donations about evenly between Democratic and Republican causes, even though Republicans controlled Capitol Hill for much of that period and most defense companies gave a large majority of their campaign donations to Republicans during that period. In recent years, Boeing's contributions to Democrats have risen. Its political-action committee and employees have donated $852,000 to Democratic candidates and parties in the current election season, which started in 2009, and $512,000 to Republicans, according to campaign-finance figures from the Center for Responsive Politics.

Meanwhile, a virtual who's who of European commerce and trade aside from the French president is lining up to take turns throwing stones at the Yanks, including Britain's very own Lord Mandelson:

"I think the attitude of the American government on the refueling aircraft issue is a grave infraction of the rules of fair competition between our economies," French Prime Minister François Fillon said Wednesday during a visit to Berlin, where members of the German government echoed his belief that the Pentagon was going to award the contract to Boeing no matter which company had the better bid. "The American government — I'll say here and now — forced EADS to quit the competition."

French European Affairs Minister Pierre Lellouche, whose strong pro-American positions had long made him something of a rarity in France, was also fuming: "It's absolutely incompatible with the rules and laws. But we're going to react. There will be consequences." And what might those be? Well for one thing, government spokesman Luc Chatel said Wednesday that French President Nicolas Sarkozy, who was also reported to be furious about the turn of events, will raise the issue with President Barack Obama during his visit to the U.S. at the end of March...

Now, there are fears that Europe could retaliate. The European Commission has warned that it would react sternly to any evidence of American protectionism favoring Boeing in the Pentagon bidding process. And British Business Secretary Peter Mandelson hinted that "the open market to U.S. producers we have in Europe" could be affected if the European Union felt that Americans were refusing to extend similar freedoms to their companies in return.

Is it just me or this something ironic about a French leader crying foul over protectionism? At any rate, also see EADS head honcho Louis Gallois saying it's no big deal. Des raisins verts, mon ami.

19/10 UPDATE: EADS may indeed be preparing a bid without its American partner.